Tax Tips for the Direct Sales Professional

WELCOME TO SELF-EMPLOYMENT
When you decide you’re going to be an entrepeneur, it’s important to know one thing: you are self-employed now. No one will be issuing you a Tslip of any kind whether it be a T4, T4A, or T5.

Because of this, you will be solely responsible for accurately tracking your income AND your expenses. Please note that says INCOME not SALES –there is a difference and we’ll get back to that shortly.

DO I NEED TO REMIT HST ON MY SALES?
The second thing you need to know as far as selling a product – such as for any Direct Sales company – is that you are NOT collecting HST on the SALE of the product, so you are not responsible for remitting that to RevCan. When we purchase – or our customers purchase – product the price that’s paid INCLUDES HST. So WHO collected it? The Company collected it so The Company must send it in. When your customer pays you for purchasing directly through you, all she is doing is REIMBURSING you the money you paid. If they buy it directly via your weblink, then you’ve collected nothing at all. Let’s look at it this way: if you were to do me a favour when you went to WalMart and picked up laundry detergent for me you would pay the store $19.99 + $2.60 HST. So when you drop it off to me, I pay you $22.59. Does this now mean you have to send the government $2.60? No, because they already got it, they don’t get to collect twice for the same sale. Direct sales work the same way.

WILL I OWE HST ON MY INCOME?
Now, back to income versus sales. When you resell a product that you’ve purchased, how much of that money actually goes in your pocket as “profit”? That’s right, either 20%, 25% or 30% but NOT 100%. What you pay income taxes on is that percentage, or your commission. In the same way, you would be subject to HST on your INCOME – this is VERY different from HST on the sale – ONLY if your income level is OVER $30,000 in a year. Let me say that again: you are only liable to remit HST on your INCOME if you make OVER $30,000. AND when you DO get to the point of having to start claiming HST on your income, you will also be able to discount it by the amount of HST you pay out on your expenses. But that’s a ways in the future, so we can shelve that discussion for now.

SO WHAT ABOUT INCOME TAX?
YOU KNOW THE OLD EXPRESSION: Nothing in life is certain except death and taxes? Well this has never been more true. However, there are ways to reduce the amount of taxable income you have and by doing that you reduce the amount of taxes you owe.

Let’s look at how to calculate your income first:
In most cases for Direct Sales companies these days, there is a “back office” on your website link and in that back office, you’ll find a place where your earnings are summarized. In the case of THIS April 30th, you’re interested in the period of time between 1st January, 2014 and 31st December, 2014. Print off that statement and set it aside for now.

Once you’ve gathered your income information, you’ll want to start compiling all of your EXPENSES. Because, like the savvy business woman (or man) that you are, you’ve saved EVERY receipt that could possibly be construed as a business expense. Right???

Let me go off on a tangent for a minute: when you file away those receipts, take a minute to make notes on the back. What kind of notes? You’ll need to list what the expense was for, who was with you (if it’s a meal or drinks receipt) the date, and any other pertinent detail that can back up the “business aspect” of the expenditure. For instance: I write off lunches with my daughter sometimes – I do her taxes – so on the back of the meal receipt I’ll write: Marina / Cipolla Handmade / 21st March/ HST return. Or if I’m sending flowers to a client on their birthday I’ll write: Stephanie / Golden Apple / 15th September / birthday – promo. Because guaranteed in April when you’re compiling you won’t remember why you paid $40 for flowers to be delivered to someone.

WHAT KIND OF EXPENSES CAN I DEDUCT?
So, specific to Direct Sales, let’s talk about legitimate tax deductions.
* the cost of signing up
* the cost of catalogues / business cards / blitz cards / thank you cards etc
* postage / courier – if you send out product to your customers
* advertising – if you buy ads anywhere (like on Facebook)
* product purchased to add to your sales kit – any items you bought that did not originally come with
* product purchased for you to wear – because every time you go out the door you’re advertising YOUR company’s products and promoting YOUR business
* gas / oil / car washes / parking if you use your car to deliver product (we’ll talk more about car expenses)
* domain names and web hosting fees
* web design and site maintenance – if you don’t do it yourself
* product that you buy to be used as samples –including if you give product away as draw or contest prizes
* product that you give to other organizations so that they can give them away in their draws – such as a donation to your kids’ school fundraiser
* bought a logo’d tablecloth? Sweatshirt? Tee shirt? Baseball cap? Even though you (or your husband) are wearing them, they are still advertising
* trusted someone to pay you and they never did? That “bad debt” comes right off your income
* do you pay an accountant to keep track of your income and expense? * have a student who helps you package product?
* travel to a seminar or training? Stayed in a hotel? Had to have your meals out because of it?
* cell phone / internet / laptop / tablet – because you do business mostly online

You can see that the only limitations are in how you spend your money to promote your business.

Important to note: you MUST have receipts for EVERY expense you are going to claim and all financial records MUST be kept for seven years, because RevCan can come back any time within those seven years and audit you.

WHAT ABOUT MEALS?
I’m getting to that.

As I mentioned earlier about lunch with my daughter, if you can prove it a legitimate business meal, it’s deductible. The only thing to remember about Meals and Entertainment expenses is that they’re only 50% deductible. Because so many businesses were taking huge advantage, RevCan decided a bunch of years ago, that only half of the meal you bought could be a legitimate expense. But half is better than none, so that’s cool. Just keep it in mind when you choose WHERE you’ll be going.

But, if you’re getting together with a few friends at Starbucks to talk lashes, go ahead and pick up the tab, because half of that is deductible too. If you’re taking a cake to a customer who’s hosting a home party for you, half of that is deductible as well.

WHAT ABOUT MY CAR?
Here’s where it gets a little more tricky, so don’t rush out and buy that Carrera just yet. Most car expenses are deductible (remember I already listed gas / oil / washes / parking) but they want a bit more detail than for meals. They want to know how many km you drove the whole year and how many kms you drove for business so you’re expected to keep a log book and produce it should they ask. So car repairs, new tires, tows, etc are all deductible but we figure out the percentage based on total miles driven and business miles. So be carefully recording. I generally recommend to my clients that they stick to those consumable car expenses. If you get into lease payments or loan payments, you’re bringing in capital gains complications later on that you really don’t want to get into until you absolutely have to.

I’VE HEARD THAT I CAN DEDUCT PART OF MY HOUSE
Yes, you can. But again, it’s within reason and it’s only the portion of the house that you can show you use SOLELY for an office or for inventory storage. And whatever that portion is – usually 10 –15% – that amount is not available for any personal calculation like property tax credit etc. But together with rent /mortgage / property taxes, you can include house or tenant’s insurance, maintenance and repairs, snow removal, gardening services, cleaning services, redecorating, utilities etc; but again, ONLY in whatever percentage of your home you can show – if you should need to – that you use ONLY for business purposes.